How Does the IRS pursue Offshore Bank Accounts?
Taxpayers who have tried to hide some of their assets in overseas bank accounts currently have two options: voluntarily reveal these accounts to the IRS via the Offshore Voluntary Disclosure Program, or face prosecution.
The first OVDP began in March 2009 as a way of giving taxpayers the chance to avoid legal problems, while also closing the income tax gap. Since the program began, the IRS has received more than 43,000 voluntary disclosures and collected more than $6 billion in back taxes, along with interest and penalties.
Over the years, the IRS has adjusted the penalty the taxpayer must pay when disclosing previously hidden offshore accounts. In the 2009 version, the OVDP charged a 20 percent penalty for the highest balance on the account over the prior six years, plus a 20 percent accuracy penalty.
In 2011, the IRS raised the penalty to 25 percent on the highest balance over the prior eight years. The next year, the penalty went up to 27.5 percent. Today, “willful” filers can be charged from 27.5 percent to 50 percent in penalties.
These penalties may seem onerous, but in exchange the IRS promises not to prosecute OVDP participants in criminal court. However, people whose unreported income was earned illegally, or who promoted using offshore accounts to avoid paying income taxes are not eligible. “Non-willful” filers also may not receive immunity from prosecution.
Taxpayers curious if they qualify for the OVDP, and whether this program is a good option for them, should speak to a tax attorney.